Question

How much are you willing to pay for one share of ABC, Inc. stock if the company just paid an annual dividend of $2.00, the dividends increase by 4.0 percent annually, and you require a return of 13.0 percent?

Group of answer choices

21.01

23.11

18.12

19.74

27.39

Answer 1

iven, Annual dividend (Do) - $2.00 growth (g) = 41. Required retuoin (Re) - 13]. So Di = 2x1104 2 2:08 (Diz Expected end) As per Gordon Model Current Price of share ABC (Po)? Di Re-g - 2.08 0.13-0.04 - $ 23.11 Hence I am willing to pay $23:11 for I share Of ABC

where Po 2 current share price DI2 Expected Dividend Rez Required rate of Return ga growth rate.